The Kraft Heinz Company 2026 Q3 Earnings Call

Hello. This is Ann Marie McCulla, Head of Global Investor Relations at The Kraft Heinz Company. I would like to welcome you to our third quarter 2026 business update. During the following remarks, we will make forward-looking statements regarding our expectations for the future, including related to our business plans and expectations, strategy, efforts and investments, and related timing and expected impacts. These statements are based on how we see things today, and actual results may differ materially due to risk and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release, which accompany these remarks, as well as our most recent 10-K, 10-Q, and eight-K filings for more information regarding these risks and uncertainties. Additionally, we will refer to non-GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP.

Please refer to today's earnings release and the non-GAAP information that accompany these remarks, which are available on our website at ir.kraftheinzcompany.com under News and Events, for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. Today, our Chief Executive Officer, Steve Cahillane, will provide an update on our business performance and overall strategy. Andre Maciel, our Chief Global Financial Officer, will then provide a financial review of the third quarter results, and we will conclude by discussing our 2026 outlook. We have also scheduled a separate live question-and-answer session with analysts. You can access our question-and-answer session at ir.kraftheinzcompany.com. A replay will also be available following the event through the same website. With that, I will now turn it over to Steve.

Thank you, Ann Marie, and thank you all for joining us. We have been building momentum throughout the year, and that continued into the third quarter as we delivered top-line results in line with our expectations. These results reflect strong growth in emerging markets and Away From Home. While we have more work to do in U.S. retail, we are maintaining the traction we built in the first half of the year. Our 2026 operating plan to turn around the U.S. business and accelerate momentum in international markets is on track. Sales and share are recovering, volumes are improving in every region, and the rest of our $700 million investment will be put to work in the fourth quarter. The momentum we are seeing comes from meeting consumers where they are and keeping our brands relevant at a time when value and affordability remain top of mind.

Whether through product superiority or price, we are giving consumers more reasons to choose our brands, and our investments will continue to compound. Those longer-term investments, including marketing, innovation, and talent, will keep building. While the path may not always be linear, we are confident it leads to stronger performance. As we look at the remainder of the year, we are raising the low end of our organic net sales guidance. We now expect to land between down 1.25% to down 0.5%. This compares to our previous expectation of down 2% to down 0.5%. We are maintaining our constant currency adjusted operating income expectations while increasing adjusted EPS primarily due to a lower effective tax rate. Looking at the third quarter, organic net sales were down 1.1%, driven by a decline in U.S. retail, partially offset by strong growth in emerging markets and global Away From Home.

When we compare our underlying performance to the first half of the year, we continue to see improvement, including recovering volume trends. Adjusted gross margin declined 40 basis points versus the prior year, a result of higher inflation in procurement and logistics, partially offset by our productivity initiatives. Constant currency adjusted operating income declined 14.6%, which reflects lapping lower variable compensation in 2025 and our planned increase in marketing, R&D, and people. Taken together, these factors generated adjusted EPS of $0.53 in the quarter. Free cash flow is down 5.2% versus the prior year, in line with our expectations as we step up investments. Our free cash flow conversion remains strong at 120%, up 11 percentage points versus prior year. This, combined with a healthy balance sheet, allow us to confidently support our dividend.

Our goal remains to drive volume-led sustainable and profitable top-line growth while continuing to generate attractive free cash flow. As we approach the end of the year, we are well into executing our plans to turn around our U.S. business and accelerate momentum across our international markets, both in retail and Away From Home channels. Let's first take a look at the U.S. business. This year, we are investing an incremental $700 million across product superiority, select pricing, marketing, sales, and R&D, of which the majority is focused on turning around our U.S. business. We have also made several changes to simplify our North America operating model, driving stronger accountability and faster decision-making across the organization. We brought in new leadership.

We introduced a refined incentive structure that keeps teams focused on market share gains while giving them more flexibility, and we sharpened our business unit model so that we are fully leaning into a business unit-led, functionally enabled approach with clear ownership. The investments, combined with our new operating model, are working. Comparing our performance to last year, we see that total company volume trends have improved by 3 percentage points. This improvement is broad-based, with better volume trends across each region. We are also seeing improved market share performance. The percentage of our revenue that is gaining or holding share has improved from 21% in 2025 to 31% year to date. When we look specifically at WIN BIG, 44% of our revenue is gaining or holding share year to date. This is led globally by our Heinz brand, which is gaining share and growing sales across each region.

We have also made progress in U.S. retail. We ended 2025 with 12% of our revenue gaining or holding share. Year to date, we are now at 25%, led by condiments and desserts. Over the past several months, our market share has held steady, and we view that stability as a solid foundation. We expect the next meaningful step-up to come as we recover distribution in next spring's resets with retailers. The investments we've made in our brands, the stronger velocities we're now delivering, and the innovation we're bringing to market give our retail partners more reasons to expand our shelf space and our consumers more reasons to choose us. When we look at where we have prioritized our investments, we see better performance. WIN BIG, which represents approximately 60% of our business globally, has returned to consumption growth.

As a reminder, we are prioritizing investments by market share goal. Where we aim to hold share in brands like Oscar Mayer and Bagel Bites, we are spending to defend. Where we aim to win, brands like Lunchables and Jell-O, we are investing selectively. Where we have the right to WIN BIG, like our Taste Elevation brands, Heinz and Philadelphia, we are distorting investments accordingly. We have talked about our performance. Now let me walk you through how we have deployed our investments this year. A portion of the investment went to price to make sure we remain competitive. We invested in opening price points across certain categories, made selective base price adjustments, and protected distribution. Assessing our performance to date, most of our investments have worked. For example, we made investments in mac and cheese liquids to close the gap to private label and bring shoppers into our liquid format.

Early results are encouraging. Both dollars and volumes are up versus the incoming trend, with no cannibalization of our dry or microwave formats. In a few areas, most notably cream cheese, it did not work. Consumers responded less to lower prices than we planned, so we are pivoting. We are pulling back on part of the investment in the fourth quarter while staying focused on strong holiday execution. A portion of our investment is also geared towards people. We have increased headcount throughout the organization, with a focus on our marketing and sales teams. We are on track, having hired approximately 80% of our North America commercial needs. This includes investments across e-commerce, where we grew approximately 14% year to date through August. We have also significantly stepped up our marketing investment, increasing it to at least 6% of net sales.

You can see it in the work with new campaigns like Heinz, "It Has to Be Heinz." You can see it with more media in market as we invest behind brands with the strongest returns and support new launches. You can see it in our strategic partnerships, which put our brands front and center at key cultural moments. Earlier this year, we announced a five-year global strategic partnership with the National Football League, and with the regular season now underway, we are bringing it to life. With over 190 million NFL fans, football is the number one sport in America, and nine of our top 10 brands index highest with NFL fans over any other sport. The partnership puts eight of our categories in front of those fans.

From NFL kickoff to Thanksgiving to the Super Bowl, we expect it to drive incremental retail opportunities and expand Away From Home in stadiums, including additional SKUs beyond ketchup and branded equipment. Alongside our incremental media investment, we are improving effectiveness and delivering a higher return on advertising spend, driven by better creative and a stronger tactical mix. Marketing is a medium-term investment, and we are already seeing benefits. As this investment continues to ramp up in market, we expect returns to compound, setting us up for a stronger 2027. Beyond marketing, we have also stepped up our investment in R&D to deliver product superiority and value. Our approach to innovation is fewer and bigger, allowing us to launch new products with more support and scale faster. We are putting our resources behind a focused set of consumer-driven platforms across convenience, new occasions, and nutrition.

We're making progress this year. Innovation is contributing 100 basis points more to our consumption performance than it did in 2025, but we still have a lot of opportunity to close the gap to branded competitors. This year's launches are a strong start. Kraft Mac & Cheese PowerMac is over 55% incremental to the category and ranked in the top quartile for velocity. Capri Sun Hydrate continues to be the fastest-turning kids' beverage innovation. Our Ore-Ida Shapes are the number one frozen innovation at a key retailer, and Lunchables Snackables is over 60% incremental. We also recently launched KD Ramen in Canada, moving into a fast-growing adjacent category. All three SKUs launched are ranked in the top quartile for velocity, and early data shows strong cross-purchases within the franchise. We will do the same in the United States.

In early 2027, we're launching Kraft Mac & Cheese Cheesy Ramen. It's the brand's first entry into new category in nearly 20 years, reflecting our focus on bringing our iconic brands to the categories and occasions where consumer interest is growing. We're encouraged by the early green shoots from the innovation we delivered this year, particularly given that we entered 2026 following a period of underinvestment. The step-up we've made in R&D and commercial support is only beginning to flow through our results. We expect its impact to become increasingly evident in 2027, especially following the spring resets and into the second half of the year. Now, turning to our international markets. Our focus is on growing the core through our Heinz brand and distribution expansion in our emerging markets.